cuadernos de administración - scielo colombia · machandran, manikandan and pant, 2013; stolovich,...

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Multi-business companies: The Leonisa case

Empresas multinegocios: Caso Leonisa

Entreprises multi-affaires: Cas Leonisa

Felipe Alzate Fernández1 Head of Development and Motivation Plans and Goods and Services, Leonisa. e-mail: [email protected]

Luz María Rivas Montoya2

Full professor, Department of Organization and Management, Universidad EAFIT, Medellín, Colombia. e-mail: [email protected]

Article of Scientific and Technological Research, PUBLINDEX-COLCIENCIAS classification

Submitted: 06/12/2017Reviewed: 30/03/2018Accepted: 02/04/2018

Core topic: Administration and Organizations JEL classification: M1, M10, M19 DOI: 10.25100/cdea.v34i60.6219

Abstract

The joint management of multi-business companies is a challenge that deserves to be studied from an administrative perspective. This exploratory work aims to show how Leonisa, a Colombian multi-business company in the textile sec-tor, has managed its business. Particularly, it presents the purposes of forming the Leonisa group, as well as its main corporate functions. In addition, it identifies the multi-divisional structure adopted for the joint management of its bu-sinesses from two fronts, commercial and industrial. This qualitative study is based on semi-structured interviews with managers from various businesses and levels of this multi-business company. The findings show that Leonisa is cha-racterized by not having a corporate center (CC) with a formal structure. Instead, these headquarters are evidenced by the functions exercised by its directors at the corporate level of the strategy, such as: 1) definition of the business portfolio and 2) internal management of centralized processes. These two functions are performed from the CC, which is set up according to the needs of the business as a whole at specific times. In other words, Leonisa does not have an autonomous corporate center, but it does have a multi-divisional structure wherefrom to manage its entire business.

Keywords: Corporate center, Multi-business Company, Multi-divisional structure (M-form), Leonisa.

Resumen

La administración conjunta de empresas multinegocios es un reto que merece ser estudiado desde una perspecti-va administrativa. El presente trabajo exploratorio tiene como objetivo mostrar la manera como Leonisa, empresa multinegocios colombiana del sector textil, ha administrado su conjunto de negocios. En particular, se presentan los propósitos de conformación del grupo Leonisa, así como sus principales funciones corporativas. Además, se identifica la estructura multidivisional adoptada para la administración conjunta de sus negocios desde dos frentes, el comercial y el industrial. Este estudio cualitativo se basa en entrevistas semiestructuradas con directivos de diversos negocios

1 Processes Engineer, Master’s in Administration, Universidad EAFIT, Colombia.2 Economist, Universidad Autónoma de Manizales, Colombia PhD in Administration, Universidad EAFIT, Colombia.

Jan. - Apr. 2018

Cuadernos de AdministraciónJournal of Management

VOL. 34N° 60

Print ISSN: 0120-4645 / E-ISSN: 2256-5078 / Short name: cuad.adm. / Pages: 81-95Facultad de Ciencias de la Administración / Universidad del Valle / Cali - Colombia

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Felipe Alzate Fernández :: Luz María Rivas Montoya

y niveles de esta empresa multinegocios. Los hallazgos evidencian que Leonisa se caracteriza por no tener un centro corporativo (CC) con una estructura formal. Más bien, ese centro se evidencia en las funciones que ejer-cen sus directivos en el nivel corporativo de la estrate-gia, tales como: 1) definición del portafolio de negocios y 2) gestión interna de procesos centralizados. Estas dos funciones son realizadas desde un CC que se conforma en momentos específicos según las necesidades del conjunto de negocios. Es decir, Leonisa no cuenta con un centro corporativo autónomo, pero sí con una estruc-tura multidivisional desde la cual administra su conjunto de negocios.

Palabras clave: Centro corporativo, Empresa multi-negocios, Estructura multidivisional (M-form), Leonisa.

Résumé

L’administration conjointe d’entreprises multi-affaires est un défi qui mérite d’être étudié à partir d’une pers-pective administrative. Le présent travail exploratoire a comme objectif celui de montrer la façon dans la-quelleLeonisa, une entreprise multi-affaires colom-bienne, dans le secteur du textile a géré son groupe d’affaires. Notamment, les objectifs de la formation du groupe Leonisa ainsi que ses fonctions principales d’entreprise sont présentés. En plus, la structure mul-ti-divisionnelle adoptée par l’administration conjointe de ses affaires à partir de deux domaines, le commer-cial et l’industriel. Cette étude qualitative est basée sur des entretiens semi-structurés avec des dirigeants de différentes entreprises et des niveaux de cette entre-prise multi-business. Les résultats mettent en évidence que Leonisa se caractérise pour ne pas avoir un centre d’entreprise (CE) avec une structure formelle. Plutôt, ce centre est évident dans les fonctions pratiquées par ses dirigeants au niveau de l’entreprise de la stratégie, tels que : 1) la définition d’un portefeuille d’affaires et 2) la gestion interne des processus centralisés. Ces deux fonctions sont exécutées à partir d’un CE qui est formé à partir de moments spécifiques selon les besoins du groupe d’affaires. C’est-à-dire que Leonisa n’a pas de centre d’entreprise autonome, mais qu’elle a une structure multi- divisionnelle à partir de laquelle elle gère son groupe d’affaires.

Mots clés: Centre d’entreprise, Entreprise multi-affai-res, Entreprise multi-divisionnelle (M-form), Leonisa.

1. IntroductionThe multi-business company, understood

as a group of businesses managed jointly, is the result of the growth of a company from the creation or acquisition of other business-es. The formation and management of this set of businesses is the focus of the study of strategy at the corporate level (Chandler, 1991, p. 9; Goold and Campbell, 1998; Goold,

Campbell and Alexander, 1994; Kanter, 1989; Porter, 1987). In the literature on corpo-rate strategy, multi-business companies are also recognized as conglomerates, modern corporations or diversified firms. In Latin America, this type of company is also recog-nized as an economic group (Leff, 1978; Ra-machandran, Manikandan and Pant, 2013; Stolovich, 1995) and as a business group in Colombia, on account of Law 222 from 1995 (Supersociedades, 2008). The groups called the “big four” are an example of this type of multi-business company in Colombia: Famil-ia Santodomingo, Familia Ardila Lulle, Familia Sarmiento Angulo and the Grupo Empresar-ial Antioqueño (Wilches-Sánchez and Rodrí-guez-Romero, 2016).

Normally, the multi-business strategy is defined and executed from a general or central offcee (Chandler, 1962, 1991), also known as a corporate headquarters (HQ) (Bir-kinshaw, Braunerhjelm, Holm and Terjesen, 2006; Collis, Young and Goold, 2007). It is also known as a parent company (or Corpo-rate Parent) (Campbell, Goold and Alexander, 1995). These corporate headquarters have been recognized as the most relevant organi-zational innovation of the 20th century, since it separated the operations of individual busi-nesses from the strategic responsibilities of the multi-business company (Menz, Kunisch and Collis, 2015).

Headquarters are understood as a cen-tral organizational unit wherefrom business units (BUs) are managed (Menzet al., 2015). From the beginning of the strategy academ-ic field, Chandler (1962) in his text Strategy and Structure refers to the headquarters as a central office wherein executives coordi-nate, evaluate, define goals and policies and allocate the resources required by a series of semi-autonomous and self-contained divi-sions (Chandler, 1962, p. 9); nowadays, these divisions can also be understood as business units. In other words, the headquarters are staffed by corporate executives who, from a central office, manage the multi-business company (Chandler, 1991).

Birkinshaw et al., (2006) state that the headquarters (HQ) have two essential ele-ments: 1) a senior management team which typically has an official meeting location; and 2) a series of corporate functions that have

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Cuadernos de Administración :: Universidad del Valle :: Vol. 34 N° 60 :: January - April 2018

the formal responsibility of fulfilling cer-tain roles (treasury, investor relations, cor-porate communications, among others). Each of these functions is performed from a physi-cally locateable location. Furthermore, these authors argue that there is a third element that characterizes the headquarters: the le-gal domicile. That is, a location from which the legal representation that bestows “na-tionality” on the company is exercised.

In Colombia, there is an economic group that does jointly manage its business from its headquarters, but has neither staffing nor a central office. Even so, the senior manage-ment of this group exercises functions relat-ed to the corporate level of the strategy. This is the case put forward in Londoño-Correa’s (2002) research on the Grupo Empresarial Antioqueño (GEA). Therein, the author char-acterizes this group as a corporate center due to the corporate functions it has devel-oped, such as: portfolio definition, internal management and external management (Lon-doño-Correa, 2003). This Colombian group is recognized because “it is not a legal en-tity, nor does it have a corporate name. Yet, it is one of the most powerful conglomerates in the country” (Dinero, 2016). This group’s strategic management’s particularity should draw the attention of academics and practi-tioners of corporate strategy.

Corporate strategy is concerned with both the definition of the business portfolio and its management. Therefore, it is convenient to know in greater detail the functions, strat-egies and structures from which multi-busi-ness companies are managed in emerging countries, in which particular cases such as GEA appear. The specificity of this case mo-tivated this research into the management of Leonisa, a Colombian company in the textile sector. This exploratory work presents the characterization of this company’s headquar-ters, based on the analysis of its operation and the revision of the organizational struc-ture adopted for joint management. Further-more, the purposes that keep Leonisa togeth-er as a multi-business company are analyzed. This exploratory research is one of the first phases of a major research project, conduct-ed in more than 20 multi-business companies in six Colombian regions (Rivas-Montoya and Londoño-Correa, 2017).

Leonisa is a company with over 60 years of experience in the production and marketing of underwear and swimwear. Over the years, the company has made changes in its strate-gy and structure to speed up its production processes and reach its customers in more than 20 countries.

The first part of this paper presents a re-view of the literature on corporate centers and multi-divisional structure. In the second, the methodological approach of the research is detailed, and the third describes Leoni-sa as a multi-business company. The fourth section discusses the results of the research thereafter. Finally, the paper concludes with the most relevant results, an invitation for future research and the identification of this research’s limitations.

2. Literature ReviewWhile corporate strategy addresses the

questions: what business to be into and what business to be out of? (definition by porta-folio) and how to manage the business as a whole) (Porter, 1987), competitive strategy concerns itself with responding: who is my client? What is my value proposition? Where am I going to compete? What are my capa-bilities and strategic resources that allow me to create and sustain competitive ad-vantage? (Osterwalder and Pigneur, 2010; Osterwalder, Pigneur, Bernarda and Smith, 2014; Porter, 2008). Along the same line, it is important to clarify that it is the corporate strategy that deals with multi-business man-agement, while the competitive one is at the level of each business unit and may be differ-ent for each of one. Functional strategies sup-port the fulfillment of the value proposition and the creation and maintenance of compet-itive advantage (De Wit and Meyer, 2010).

Hence, the corporate strategy deals with the configuration and management of multi-business companies (MBCs), under-stood as an organization structured through business units (BUs) that focus on different product/market segments but have some de-gree of connection between them (Eisenhardt and Piezunka, 2011). Such organizations have been recognized in the literature as multi-di-visional (M-Form) organizations, highlighted by Chandler (1962) in his research on Strate-

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gy and Structure in four major U.S. corpora-tions (General Motors, Dupont, Standard Oil of New Jersey and Sears Roebuck).

This paper draws on the concepts of orga-nizational structure from the perspectives of (Mintzberg, 1984; Whittington, 2003) Sán-chez-Bueno and Suárez-González, 2010) to address the concept of multi-divisional struc-ture, understood as that form that prevails in multi-business companies and reflects the tension between the autonomy to which busi-ness unit managers aspire and the control exercised by a higher-level corporate hierar-chy recognized as a corporate headquarters (HQ) (Rivas, 2013).

In his text on organizations structuring, Mintzberg (1984), presents five structural configurations (simple structure, machine bureaucracy, professional bureaucracy, divi-sional form and adhocracy), most often de-scribed in the literature on organizational theory. According to this author, most organi-zations experience them all, leaning towards one, according to the corresponding config-uration in each organization. Regarding the divisional configuration, it specifically refers to the multi-divisional form (M-form) as the structure that emerges when companies be-come so large that the simple divisional form becomes insufficient and, therefore, divisions appear above divisions. Whittington (2003), describes the organizational structure based on questions such as:

Who has the resources, who communica-tes with whom, who is responsible for what, who can do what, what can be done on their own and what can be done with others, what kinds of careers are available and what is the flow of knowledge throughout the orga-nization(p. 319).

As can be inferred from the above quote, the relationship between strategy and struc-ture is of the essence for the achievement of the company’s objectives (Whittington, 2003). Additionally, this author warns that, in the case of multi-business enterprises, the functional (or divisional) structure in terms of Mintzberg (1984) is insufficient to deal with the tension between the headquarters and the business units or divisions that charac-terize this type of company. On this account, the multidivisional structure is adopted as it separates the business or operational respon-

sibilities from the strategic responsibilities that remain at the headquarters. The multidi-visional structure clearly expresses a tension typical of multi-business companies: central-ization vs. decentralization. While centraliza-tion offers the benefits of economies of scale, process consistency, knowledge and capac-ity building possibilities, decentralization allows managers greater autonomy in deci-sion-making and resource allocation, thereby facilitating the speed, creativity and innova-tion required by competitive markets (Kates and Galbraith, 2007).

In relation to the management of the multi-business company, Eisenhardt and Pie-zunka (2011), three main choices posited by the corporate strategy stand out: control and motivation of the BUs; collaborations be-tween BUs and scope of the firm. In addition, these authors refer to two perspectives from which multi-business companies have been studied: the traditional one and the complex one. While the traditional one focuses on the leading role of the headquarters in strategic choices, the complex one emphasizes the role of Business Units’ managers and suggests that the HQ rather than controlling should fa-cilitate collaboration processes between BUs. It is then possible to infer that competition as the focus of each business unit’s strategy is insufficient when the BU is focused not only on its own performance, but also on the joint creation of economic value for the multi-busi-ness company. Thusly, the idea of collabora-tion between BUs appears as essential for the materialization of this jointly created value, recognized in literature as synergy (Rivas and Londoño-Correa, 2017).

In this respect, Sánchez-Bueno and Suárez-González (2010) expand the concept of a multi-divisional structure with three new forms: multi-divisional cooperative, multi-divisional competitive and inner net-work. The cooperative multi-divisional struc-ture is characterized by less decentralization and greater integration between divisions, while the competitive structure has less inte-gration between divisions and a high degree of operational decentralization. In contrast, the inner network is characterized by a high degree of operational decentralization and integration between divisions. These three new forms were the result of studies carried out in one hundred Spanish companies in the

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period between 1993 and 2003. The arising of structures other than the divisional ones, due to their processes and mechanisms for decision-making, such as the so-called multi-ple divisional network (N-form: multidivision-al network), shows the substitution of tradi-tional structures by new forms that differ in aspects such as technological and human in-terdependence, critical organizational levels, the communication network, the role of the headquarters, amongst others (Sánchez-Bue-no and Suárez-González, 2010). The N-form emphasizes lateral rather than vertical in-teractions; it proposes a shift to a place of command and control as opposed to bureau-cratization. In addition, it posits the creation of networks, instead of managerialism (Whit-tington and Mayer, 1997, p. 253). Namely, as argued by Whittington and Mayer (2000), the N-form is a flatter, more flexible and horizon-tal form of organization than the M-form, but there are no differences in decentralized op-erations and the centralized corporate strat-egy as it seems to remain intact.

On the subject of strategic management from a central office or headquarters, Mintz-berg (1984) asserts the latter is concerned with managing a strategic portfolio, allocat-ing global financial resources, designing per-formance management systems, replacing and appointing division managers, monitor-ing divisional behavior on a personal level and providing support services to divisions. In turn, Menz et al. (2015) refer to the cor-porate headquarters as the central organiza-tional unit in the contemporary corporation, through which value is created for the entire firm or multi-business enterprise.

Once the concepts of multi-divisional structure and corporate headquarters have been clarified, the following section presents the methodological approach of the research on the Leonisa group.

3. Methodological approach For the characterization of Leonisa’s head-

quarters, a qualitative study was conducted in 2016 (Galeano, 2004) which addressed the following research questions: What are the purposes of the company in forming a busi-ness group? What structure does the Leonisa Group adopt to support these functions? What

are the functions of Leonisa’s headquarters? To answer these questions, the general pur-pose consisted in characterizing Leonisa’s headquarters by analyzing its structure. To this end, specific objectives were defined as follows: 1) Identify the purposes for creating the Leonisa Group; 2) Identify the structure of the organization; and 3) Describe the busi-ness and administrative functions of the Leo-nisa corporate headquarters.

To characterize Leonisa’s headquarters, its structure was researched on the corpora-te level of the strategy. Firstly, an exploration on journals specializing on the Business and Management area and the category of Stra-tegy and Management from Scimago Jour-nal and Country Rank (2015) and ISI Web of Science was carried out for the period com-prised between 2005 and 2015. The search was conducted using keywords that could ac-count for the multi-business company from an administrative perspective such as Head-quarters, Multi-business Firm and Multidivi-sional. The initial result yielded 142 papers, of which 28 were selected, published in Engli-sh or Spanish, directly related to the field of corporate strategy. Subsequently, 15 papers were selected, which specifically referred to the multi-divisional structure in the context of multi-business companies. Furthermore, some books and handbooks by authors recog-nized in the field of strategy for their contri-butions on organizational structure were re-viewed.

The literature review on multi-divisional structure gains relevance in publications produced between 2005 and 2015, particu-larly in the context of developed countries. These articles have been published by wi-dely recognized journals, such as Organiza-tion Science, Journal of International Manage-ment, Strategic Management Journal, among others. As shown in table 1, which presents the authors’ universities and countries of affiliation, Latin American universities and authors therefrom are lacking, which justi-fies this type of research.

In the theoretical approaches on orga-nizational structure presented by the revi-sed papers, the Resource Based View of the Firm (RBVF) stands out with eight papers (Alfoldi, Clegg and McGaughey, 2012; Bar-dolet, Fox and Lovallo, 2011; Cao, Gedajlo-

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vic, and Zhang, 2009; Chung, Gibbons and Schoch, 2006; Lupton and Beamish, 2014; Pi-telis, 2007). In this same vein, the role of the Knowledge Based View of the Firm (KBVF) is also evident, with six papers based upon it (Birkinshaw and Lingblad, 2005; Connell and Voola, 2007; Egelhoff, 2010; Galán and Sán-chez-Bueno, 2009; Vahlne, Schweizer, and Johanson, 2012). Finally, both the Theory of the Firm (Zhou, 2011) and the theoretical re-ferences on Mergers and Acquisitions (MyA, Mergers and Acquisitions) (Tallman and Koza, 2010), were present in only one paper respec-tively. Table 1 shows the countries of affilia-tion for the universities where the authors of the 15 papers studied work, the universities that stand out for their research on multi-di-visional structure and the theoretical approa-ches from which such research has been ca-rried out.

The reviewed papers proved insufficient to conceptualize on the multidivisional struc-ture that characterizes multi-business enter-prises, since they focused on very specific issues without referring to the assumptions whereon the different forms adopted by the multi-business companies’ structures are typified. On this account, it was decided to complement this information with other au-thors recognized within the topic of multidi-visional structure.

Secondly, two techniques were used to co-llect the data: semi-structured interview and documentary review. There were two criteria for selecting the interviewees: the manage-ment level of the different businesses (mana-gers and former managers) and the possibili-

ty of access to information (or the willingness of the interviewees to share information). The seven semi-structured interviews were conducted with executives and former exe-cutives of both Leonisa and the parent com-pany, as well as from its enterprises or subsi-diaries (business units), which were selected from different hierarchical positions within the structure of each company for their ro-les as heads, directors or managers. Each of them was interviewed for one hour in August and September 2016.

The documentary review was conducted on websites, annual reports of the organiza-tion, and public domain documents written about Leonisa. The analysis of the data was carried out through a process of categoriza-tion or codification, open at first and then se-lective thereafter, based on the transcription of interviews and revised documents. There-fore, the theoretical categories defined in the conceptual framework were complemented by those emerging from the fieldwork.

4. General aspects of the origin and development of Leonisa

Leonisa is currently headquartered in Me-dellin, Colombia, where it produces and mar-kets underwear through various companies described in Table 2.

Leonisa has shaped its business portfolio over the years based on a growth strategy that seeks to minimize risk and increase the speed of its operation. This has been possi-ble through vertical forward and backward

Table 1. Research on multi-divisional structure: countries, universities and theoretical approaches

Countries of affiiation Universities Theoretical approximations

United States (9 authors)United Kingdom (4)Australia (4)Spain (3)Sweden (3)Singapore (2)ItalyCanadaChinaUnited Arab Emirates

University of SydneyUniversity of UppsalaUniversidad de Salamanca

Resource Based View of the Firm (RBVF) (8 papers)Knowledge Based View of the Firm (KBVF) (6)Theory of the Firm (1)Mergers and Acquisitions (M&A) (1)

Source: Author’s own elaboration.

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integrations. Each company has strengthe-ned the group’s growth process in different strategic aspects. For instance, the forward vertical integration can be seen when Votre Passion was created as Leonisa’s catalogue sales subsidiary; and Prym Le Sensuel, in or-der to optimize idle time and surplus mate-rials, made it possible to have first-class pro-ducts marketed in different sales channels, which has allowed Leonisa to control more than 80% of its sales through catalogue, on-line and retail sales. In the case of vertical backward integration, the production of fa-brics, the dyeing and finishing processes and the manufacturing of its products through cooperatives that work exclusively for Leoni-sa stand out.

4.1. Creation, industrial development, logistics development and internationalization

On November 20, 1956, in the city of Ar-menia, Colombia, the Urrea brothers - Mar-co Aurelio, Joaquín, Luis Enrique and Julio - founded the company. At the time, there was no company dedicated to the production of women’s underwear in this country, and the Urrea brothers saw this as a business oppor-tunity. Afterwards, they moved to Medellín, where they set up a workshop, got a filleting machine, a sewing machine, and began im-porting fabrics and supplies (Ramírez, 2006).

In 1966, Leonisa began its process of in-ternationalization to the Caribbean Islands and Venezuela, through the sale of its flags-hip product, the reference 1000 brassiere. La-ter on, it continued its expansion to fourteen other Latin American and three European countries from product distribution subsidia-ries, and from a garment plant in Costa Rica to serve the Central American market (Sana-bria, 2005).

In 1990, the Leonisa Distribution Center (CDL) was born with the objective of cen-tralizing, in Medellín, the operation of the different sales channels and optimizing the flow of the company’s inventory in accordan-ce with market needs. From there, national and international orders began to be met and negotiations with freight forwarders be-gan in order to achieve economies of scale in the distribution of products. The entire ex-port and import operation is managed from the headquarters or central office, and none of the subsidiaries is allowed perform opera-tions outside the Leonisa foreign trade team.

Figure 1 presents a timeline with Leoni-sa’s most representative facts from its crea-tion in 1956 to 2014.

4.2. Leonisa’s strategyAs a multi-business company, Leonisa

counts with strategies at the corporate, com-

Table 2. Companies belonging to Leonisa

Company Creation Purposes Structure

Votre Passion 1991 To establish a commercial network of saleswomen to reach a larger number of customers located an-ywhere in the country. 2. To diversify the portfolio in complementary products: women’s outerwear, men’s outerwear, youthwear, cosmetics, and accessories.

CEO and a group of seven managers: CFO, Marketing, Sales, Logistics, Pro-curement, IT and Human Resources.

Prym LeSensuel 1984 To manufacture products for Leonisa’s companies from surplus inputs, generating turnover of the ma-terials not used by the headquarters, to turn them into first-class products and to commercialize them in the different channels of the group.

General Management accompanied by a production and administrative team.

Prym 1984 To produce swimwear as an independent company. General Management and a primary team for the areas of Production, Mar-keting and Finance.

Dissen 1989 To commercialize the products manufactured in the original business in the Colombian retail sector. It is segmented into two major groups (wholly-owned and not-wholly-owned) and reports on the achievement of goals to the organization’s headquarters directly.

Administrative director in charge of accounting, portfolio, credit and co-llections; and three commercial mana-gers.

Source: Author’s own elaboration

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petitive and operational levels. Its corporate strategy is characterized as related diversi-fication, with vertical backward and forward integration. Integrations are strategies to di-versify the core business into adjacent activi-ties in the network or value chain. Backwards integration has been accomplished through the creation of companies that supply the inputs for underwear and swimwear produc-tion, where each specializes in the produc-tion of specific parts that were previously purchased from third parties. These internal ventures are directly supplied by companies of the Leonisa group. The forward integration created companies wherein direct contact with the end customer is held through its re-tail, direct and online distribution channels, thereby achieving more than 90% of Leoni-sa’s sales through companies belonging to the group itself. The corporate strategy has become a multi-business company managed through a multi-divisional structure. Leoni-sa’s headquarters are the central body from which corporate guidelines are provided to each of the group’s companies. In addition to the general guidelines, the competitive stra-tegy for each company is also defined.

The competitive strategy developed in re-cent years has been based on two main pi-llars: differentiation and total look. The for-mer seeks to develop new products, different from those offered in the market. And the la-tter, with a concept that integrates the diffe-rent product lines, seeks to create an identity for the Leonisa woman through the use of un-derwear. In line with the above, Leonisa has

strengthened its competitive strategy to con-tinue to grow sales in the four channels and promote the positioning of the brand world-wide.

As for Leonisa’s operational strategy, it should be noted that it focuses on producing between 30% and 40% in its own plants, while the remaining amount is produced in coope-ratives located in Antioquia (Sanabría, 2005). The corporate, as well as the competitive and operational strategies are managed from the headquarters or head office (Leonisa), where strategic decisions are made to promote the growth of the company and achieve the long-term objectives set.

4.3. Functioning and structure of Leonisa

The management of the whole business is carried out, partly, from Leonisa’s headquar-ters as the parent company; this is evidenced by the different corporate functions carried out therein. For example, regarding internal management, all subsidiaries are supported from the areas of Treasury, Audit and IT. The Treasury area manages the company’s in-vestments centrally, in accordance with the group’s total profitability. The Audit area oversees the execution of the processes in each company, according to the policies esta-blished by the headquarters. In turn, the IT area is responsible for developments for all subsidiaries, based on the needs of both pro-duction and distribution companies.

Figure 1. Leonisa’s Timeline


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In relation to commercial management, support is provided to all subsidiaries from the Foreign Trade and Distribution Channels area. The Foreign Trade team is in charge of managing the import operations of raw mate-rials and finished products, and exports from Colombia to their different destinations. In distribution channels, the company has its own stores in the retail market, large de-partment stores in major chains, online sa-les through the virtual store at www.leonisa.com, and the direct sales channel, which re-presents nearly 70% of the company’s sales. The four main distribution channels are na-tional and international in scope. For instan-ce, in a country like Peru, the brand has a presence with its own stores (retail), Falabe-lla (large department stores), direct sales (a subsidiary of Leonisa) and the online store.

The subsidiaries report periodically to the headquarters, where portfolio and structure decisions are made for each company belon-ging to the group, according to the perfor-mance achieved by each of them. The cor-porate center controls the compliance with the competitive and operational strategy, ca-rrying out frequent audits to guarantee the execution of the guidelines transmitted from the headquarters.

Leonisa counts with channels for the com-mercialization of products in more than four-teen countries, through catalog sales, online stores, wholly-owned stores, large and small department stores and authorized distribu-tors. In the United States, for instance, it has all the alternatives. It also has a presence in Mexico, Peru, Puerto Rico, Guatemala and Spain; it also serves markets in Canada, Ger-many, Portugal, Bolivia, Ecuador and Costa Rica. The subsidiary in Spain handles orders from all over Europe, and has currently at-tained significant sales in countries such as the United Kingdom, France, Italy, Sweden, Norway and Finland.

The main office coordinates each coun-try’s product portfolio, monitors compliance with established business goals and authori-zes operational and administrative reforms. The opening of new distribution channels must also be consulted and approved by the headquarters, in order to meet the commit-ments established from the centralized ma-nufacturing plant in Colombia.

5. Analysis and resultsAs can be inferred from the description

presented in the previous section, the Leoni-sa group does not have a corporate center as defined by the literature. Namely, there is no hierarchy of corporate executives dedicated exclusively to the management of the busi-ness as a whole. In other words, there is no fixed structure, with identifiable staffing and physical headquarters. Notwithstanding, sin-ce Leonisa as a producer and marketer of un-derwear evolved into a multi-business com-pany, it was necessary to exercise corporate functions that led it to adopt a multi-divisio-nal structure, but not an autonomous corpo-rate center. In this respect, some similarities are drawn between it and the Grupo Empre-sarial Antioqueño, mentioned above, since its headquarters make decisions associated with the management of the business port-folio and its structure. But it differs because Leonisa’s ownership relationship (family-ow-ned) enables it to have any decision, such as including new product lines, new marketing strategies, and new locations, among others, monitored and approved by Leonisa’s execu-tives and board members, who exercise con-trol over each business unit or subsidiary: Votre Passion, Prym Le Sensuel, Prym, Dis-sen and each foreign distributor.

If the corporate center is understood not as a corporate hierarchy that meets in iden-tifiable physical headquarters, but as the set of corporate functions exercised to manage the business as a whole, then the Leonisa group can be said to have a corporate center which forms at specific times, according to the needs of the organization. Nevertheless, in relation to the management of subsidiaries abroad, each company has a basic payroll that functions as a copy of the administrative structure in Colombia, but on a smaller sca-le. For instance, there is a small distribution center in each country, which operates under the same technology as Colombia’s distri-bution center. Likewise, there is a treasury team and an administrative-financial team; both lend support to the General Manager, who is also the legal representative. In addi-tion, each process has a counterpart in Co-lombia from which it receives the headquar-ters’ guidelines. All this allows to infer that the Leonisa group remains under the mul-ti-divisional structure (M-form) as Figure 2

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will show as exhibited by Galán, Sánchez and Zúñiga-Vicente, (2005) where the company has divisions for its operation; however, the company differentiates itself inasmuch as the responsibilities of the business are not expli-citly separated from strategic decision-ma-king into a specific corporate center.

Leonisa was formed as a group from the creation of its different companies, with the purpose of minimizing risks in its growth strategy and, at the same time, streamli-ning both productive and commercial opera-tions. By doing so, they are deemed capable of creating synergy, i.e. greater value can be created by jointly managing the companies formed. As one of the company’s senior ma-nagers says:

[...] to the extent that synergies have ari-sen, to the extent that tariff tax benefits have been identified, companies have been either separated or grouped together again or again; this is the purpose for which each of them has been created [...] (Interview with Chief Financial Officer September 7, 2016).

And another executive raises:

[...] the vice presidents are very smart when they create these companies, because they are creating them thinking about business speed and tax optimization [...] (Interview with the Administrative Director on Sep-tember 12, 2016).

In addition to the foregoing, the company has promoted the creation of production cooperatives to increase operational speed, strengthen social work in municipalities of Antioquia and, finally, to increase production flexibility.

The structure of the Leonisa Group re-sults from its corporate strategy of vertical integration, both forward and backward. In this structure, two fronts are identified: in-dustrial and commercial. The first is served through its production subsidiaries, which are responsible for supplying the inputs for the manufacturing of underwear. This pro-cess occurs as a backward vertical integra-tion. For example, one company is responsi-ble for the purchase and processing of the fabric, another for the thermal processes, another for the garment, and so on until it is shielded, thus favoring specialization in pro-duction. On the commercial front (forward

Figure 2. Leonisa’s structure


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vertical integration), all products are recei-ved and sold across multiple platforms to reach a larger number of customers. As one of the interviewees states:

[...] this organization has been going on in the sense of not being seen as a mere ma-nufacturing company, but more as a trading company, with the brand, that knows who makes the product and has the knowledge of how to distribute it and reach an end con-sumer, so these are the three levers that the organization has: the brand, the industrial continuation and the distribution chan-nels[...] (Interview with the director of trea-sury on September 23, 2016).

Corporate functions, business (or new re-venue generation) and administrative (or cost and expense reduction), are performed from the headquarters. Following this line of thin-king, the existence of a corporate center is asserted, which manages the group of com-panies through the centralization of deci-sion-making, corporate guidelines, and the consolidation of information from each of the subsidiaries.

The following processes were identified as centralized: controllership, audit, compen-sation, legal, risk and insurance and brand management. In the Controllership area, the accounts of all the companies are cross-re-ferenced; this cross-referencing enables an integral view of the group’s final income. In Audit, all processes are validated and the need for implementation of new projects is identified. In the Compensation area, the no-velties regarding the payroll of each subsi-diary are centralized, as well as the settle-ments and payments to parafiscal entities. The Legal process consists on carrying out all the group’s legal processes and reviewing contracts for the provision of services and the purchase of goods. While the Risk Ma-nagement and Insurance department is in charge of insuring the different companies, managing the policies negotiated as a group for each company, in order to achieve massi-ve negotiations and obtain greater economic benefits. And finally, the Brand Management process provides the necessary guidelines to maintain the group’s coherence, i.e., that each company and subsidiary has the appro-ved brand in all the countries where it has a presence. In relation to the brand, one of Leo-nisa’s former directors posits:

[....] what is intended is, like any multinatio-nal or brand present anywhere in the world, that when consumers arrive at that point of sale, they will not be able to really identify in which country they are because layout of the store or the arrangement of everything is exactly the same[...] (Interview with for-mer supply manager September 13, 2016).

All this leads to the conclusion that, althou-gh there are several centralized processes in the Leonisa group, the subsidiaries are free to put changes and improvements forward to the headquarters. These proposals have been evaluated and implemented in both produc-tion and commercial processes. For instance, if a subsidiary sees an opportunity to open a new sales channel, the proposal is presen-ted to the headquarters. On the other hand, Leonisa’s central office promotes the forma-tion of corporate committees, where spaces for strategy discussion are generated. These spaces have as their objective alignment the different processes from a single corporate guideline. By way of illustration, the corpo-rate procurement committee is made up of people from the headquarters and Votre; from there, synergies are promoted with the aim of improving bargaining power with su-ppliers.

In addition to the corporate functions, processes and committees mentioned above, there is the role of each company’s boards of directors, as they make the final decisions. This implies that, while there is a certain level of autonomy for companies and subsi-diaries, centralized control is maintained, not only by the boards of each company, but also by the board of Leonisa as the parent company. Control is exercised through these periodic meetings, at which each subsidiary, whether it is a producer or trader, internatio-nal or local, presents its results, follow-ups, projections, authorization requests and im-provement plans to the board in a monthly basis. This is how all companies periodically connect to headquarters through a unified meeting format. And, from the board of di-rectors of Leonisa, the global aspect of the corporate strategy is defined and maintai-ned. Along the same lines, Leonisa can be said to promote the concept of socialization put forward by Chung et al. (2006). This con-cept suggests that there is an informal and subtle mechanism that, in addition to the

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structural and formal mechanisms, integra-tes the different business units.

With regards to the allocation of resour-ces from headquarters to the different sub-sidiaries, there are guidelines for developing the budget of each country or company. For this purpose, the Manager of each one makes an initial proposal that he presents to the Board of Directors and justifies the expen-ses or investments. Nonetheless, there is no clear direction to encourage the interaction of subsidiaries or the creation of synergies between them. In other words, the synergies achieved thus far have generated sponta-neously in response to the needs of a specific company. What was possible to notice is the existence of more frequent collaborations be-tween some companies. For example, Dissen collaborates with Votre in the evacuation of non-portfolio products and, additionally, su-pports the saleswomen’s collection throu-gh the stores, which facilitates constant communication between both companies. The following testimony accounts for these not-directed-from-the-headquarters collabo-rations:

[...] there is no constant structure or commi-ttee or periodic meetings where companies are dealt with, but as the needs arise, we go one way or another[...] (Interview with Chief Financial Officer September 7, 2016).

One synergy resulting from spontaneous collaborations between companies, lies in the usage of the surplus from underwear manu-facturing inputs, which occurs between Votre and Prym Le Sensuel. This type of synergy that comes from collaboration between units is recognized in the literature as cross-busi-ness synergies (Eisenhardt and Galunic, 2000; Knoll, 2007).

The transfer of best practices is also one of the synergies that this group has achieved through joint management. An example the foregoing is the creation of the direct-sales channel in Colombia in 1991, which was repli-cated in eight countries without using fran-chises or management thereof through third parties, and a centralized management of the brand image. One of the interviewees com-ments on this:

[...] Prym is a company specialized in swi-mwear with the autonomy to know, direct

and manage the entire swimwear business, and is fed by the knowledge and experience of Leonisa, who is the backer of the brand [...] (Interview with the Supply Manager on September 9, 2016).

All of the above illustrates the structu-re of the companies belonging to the Leoni-sa group in Figure 2, from the commercial and administrative (including the productive) fronts.

This figure shows the multidivisional structure of the Leonisa Group, where a corporate center made up of executives de-dicated exclusively to defining the business portfolio and managing it is nowhere to be seen. Nevertheless, the exercise of corporate functions and centralized processes, as well as the role played by boards of directors and corporate committees, provide for a corpo-rate center immersed in Leonisa’s headquar-ters, wherefrom local and foreign companies and subsidiaries are coordinated.

6. Conclusions Leonisa exercises centralized functions

and processes through a multi-divisional structure, characteristic of a multi-business company. However, it does not have an au-tonomous corporate center, i.e., an exclusive corporate hierarchy, with easily identifiable staffing and fixed headquarters. This corpo-rate center is formed only when making deci-sions that impact the corporate strategy and the functioning of each subsidiary in relation to the whole becomes necessary.

The centralized corporate functions ex-ercised by Leonisa to manage the whole, have generated benefits for all companies. An example of the above is the control of the subsidiaries’ expenses, as well as the stra-tegic management of resources, capacities and investments. In addition, the gains from joint negotiation with suppliers, especially abroad, are clear and materialize in econo-mies of scale.

The two main purposes for the formation of the Leonisa group identified by this research, associated with economic objectives, were: risk minimization and operational efficiency. The first purpose arises from concerns re-lated to the political or economic situation

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in the countries where the group has a pres-ence. For instance, should Colombia become an unliveable country or Costa Rica become an unviable country at some point, products could be supplied through polyfunctional plants, which would not be specialized in a single product line. This, of course, grants greater versatility and efficiency in meeting market demands. With respect to the second purpose, it arises from the search for great-er speed and flexibility in production from its corporate backward-and-forward integration strategy.

From the point of view of the multi-divi-sional structure of the Leonisa group, the centralization of processes has allowed it to dilute the labor costs in connection to the shared use areas from the main headquar-ters. In addition, the multidivisional nature of the commercial and production fronts has allowed the company greater control over its processes and to align its competitive strate-gy in each of its subsidiaries. Furthermore, it was possible to identify the spontaneous way in which synergies are achieved between dif-ferent subsidiaries, whether producers or marketers, according to the need at hand. It was also possible to recognize synergies pro-moted from the headquarters, such as its om-nichannel strategy and brand management.

According to the results of this research, the corporate center of the Leonisa group is similar to that of the GEA, inasmuch as it does not have fixed staffing or independent headquarters. Namely, this case also takes distance from the literature presented on the corporate centers of multi-business compa-nies in developed countries. This particular-ity, identified in the GEA and Leonisa, allows us to infer that multi-business administra-tion in Colombia is not necessarily carried out from an easily identifiable corporate cen-ter and with an exclusive corporate staffing, but that it is also possible to manage sever-al businesses together without an explicitly constituted corporate center.

The complexity of managing a multi-busi-ness enterprise, and in particular that of the Leonisa group, would justify further re-search. For example, it would be interesting to analyze the possibility of rethinking the current multi-divisional structure based on the centralization of new processes. Or, to re-

view the possibility of consolidating a single logistics team, integrating Votre’s and the corporate team, with the aim of making the group more customer-oriented rather than company-specific. It would also be advisable to research other companies in the textile sector given the crisis that this sector has been experiencing in recent years; a crisis that invites us to rethink not only the strat-egy but also the structure of the companies in the textile sector; as well as to research on the coexistence of formal multi-divisional structures with other types of informal orga-nizational forms. In addition, a contribution to the teaching of corporate-level strategy, if a multi-case study were carried out that would at least allow conceptual generaliza-tion of the different strategies and structures adopted by Colombian multi-business compa-nies.

Finally, it should be noted that this re-search does not enable generalizations since its interest was focused on characterizing Leonisa’s corporate center based on the iden-tification of purposes, and on the structure it has adopted to manage its business set, func-tions and corporate processes. Moreover, the literature review only revised databases of higher academic recognition (ISI and Sco-pus), which could leave out publications on cases of Latin American companies.

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¿How to quote this article?Alzate Fernández, F., & Rivas Montoya, L. M. (2018). Multi-business companies: The Leonisa case. Cuadernos de Administración, 34(60), 81-95. DOI: 10.25100/cdea.v34i60.6219.

Cuadernos de Administración journal by Universidad del Valle is under licence Creative Commons Reconoci-miento-NoComercial-SinObrasDerivadas 4.0. Based in http://cuadernosdeadministracion.univalle.edu.co/

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